Three Stories about Capitalism

Since moving to the NYU-Stern School of Business in 2011, I’ve been interested in the many ways that moral psychology influences economic thinking. I was surrounded by professors and MBA students who see business as a force for good, and I was periodically riding my bicycle a mile south to study the Occupy Wall Street movement, which saw capitalism as a great evil. Over the next two years I came to see that there were two diametrically opposed stories about capitalism circulating in Western cultures: capitalism is exploitation, and capitalism is alchemy (i.e., it makes gold out of base metals, and we are all better off). I began to write out those stories and make them explicit in the business ethics courses I was teaching at Stern.

In February, I was given the chance to tell those two stories at an unusual panel discussion. It was held at the American Enterprise Institute – one of the foremost free market think tanks – a place devoted to promulgating the positive story about business. Its president, Arthur Brooks, has been scrambling culture war categories recently by proposing that Republicans need to “declare peace” on the safety net, and they need to make the moral case for capitalism. As one way to explore the moral case for capitalism, Brooks invited The Dalai Lama for two days of discussions. I was invited to take part in the second day.

I had met the Dalai Lama once before, at a discussion on secular ethics at USC in 2011, and was shocked to hear his answer to my question about what kind of ethics he would like to see in Tibet: Marxist. You can see our exchange here. His Holiness firmly embraced the exploitation story. So I figured that this second meeting would be a good place to bring up the two stories about capitalism and ask him if he really meant to embrace the exploitation story told by Marxists everywhere, despite the fact that Marxism usually leads to poverty and secret police forces.

Here is the video of my talk and his response. I paste below it the transcript of my written remarks, which are quite close to what I actually said. These two stories, plus a third, yet to be written, is the topic of my next book. My remarks start at 47:20.

Overall it was a lovely event – not overtly partisan, just an exploration of some of the most important issues of our day: capitalism, happiness, and ethics. At one point before my talk, the Dalai Lama said that, as a result of hearing the speakers, he had “developed more respect about capitalism.” You can read more about the event in David Brooks’ column.

=================== TEXT OF MY REMARKS ======================

Three stories about capitalism

Jonathan Haidt

What a wonderful world we live in, when a religious leader most beloved on the left [The Dalai Lama], comes to speak at a free-market think tank led by a man who wants conservatives to strive for social justice [Arthur Brooks]. This day gives me hope.

In my remarks today, I’d like to tell you three stories about Capitalism. His Holiness endorses the first story. I will try to convince him that he should put more credence in the second story, and then help us to write the third.

Here is the first story, Capitalism is exploitation. It goes like this:

Once upon a time, work was real and authentic. Farmers raised crops and craftsmen made goods. People traded those goods locally, and that trade strengthened local communities. But then, Capitalism was invented, and darkness spread across the land. The capitalists developed ingenious techniques for squeezing wealth out of workers, and then sucking up all of societies’ resources for themselves. The capitalist class uses its wealth to buy political influence, and now the 1% is above the law. The rest of us are its pawns, forever. The end.

In their recent book Why Nations Fail, Daron Acemoglu and James Robinson show that there is a great deal of truth to this story. In most countries and at most times, economic institutions have been extractive, not inclusive and generative. This exploitation story activates many aspects of our innate moral psychology. One is that we judge people based on their intentions. When a merchant or businessperson makes our lives better, we give them no moral credit because their goal was profit. As Adam Smith put it…. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” We may praise their skill, but we never praise their virtue. In fact, we see them as selfish.

This, I believe, is the story about capitalism that His Holiness embraces. When I first met him at the U. of Southern California, 3 years ago, I asked him what kind of government he’d like to see in Tibet. Here was his response:

Between socialism and capitalism, I’m socialist, and furthermore, I always describe myself as a Marxist…. But not a Leninist. In my mind, Marxism is the only economic theory that expresses a sense of concern about equal distribution. That’s a moral thing. Whereas capitalism…. Is about “how to make a profit,” only that. And in order to get more profit, there is no hesitation to exploit.

But what if we were to judge people, and ideologies, by their results, rather than by their intentions? That would lead us to the second story about capitalism: Capitalism is our savior.

STORY 2:

Here’s how it goes:

Once upon a time, and for thousands of years, almost everyone was poor, and many were slaves or serfs. Then one day, some good institutions were invented in England and Holland. These democratic institutions put checks on the exploitative power of the elites, which in turn allowed for the creation of economic institutions that rewarded hard work, risk-taking, and innovation. Free Market Capitalism was born. It spread rapidly across Europe and to some of the British colonies. In just a few centuries, poverty disappeared in these fortunate countries, and people got rights and dignity, safety and longevity. Free market capitalism is our savior, and Marxism is the devil. In the last 30 years, dozens of countries have seen the light, cast aside the devil, and embraced our savior. If we can spread the gospel to all countries, then we will vanquish poverty and enter a golden age. The end.

We heard this second story in Glen Hubbard’s remarks, and I believe the historical facts strongly support it. Free markets really are miracles. They can quite literally turn water into wine, in vast quantities, and at low, low prices, as long as vineyard owners can get access to capital, labor, and transportation networks.

But because free markets are so astonishingly good, some people come to worship them. A basic principle of moral psychology is that morality binds and blinds. When any group of people makes something into a sacred object, the joint worship of the object binds them together, but then prevents them from seeing any faults or flaws.

Pope Francis pointed this out in his controversial Exhortation last November. He criticized those who embrace the second story too firmly as exhibiting “A crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.” And this brings us to the third story about Capitalism, the story that has yet to be written. It begins like this:

THIRD STORY

Once upon a time, in the 1990s, capitalism triumphed over all other forms of economic organization, and the entire planet began moving toward prosperity. But we didn’t all live happily ever after. In fact, it was just the beginning of a new chapter, in which new challenges were discovered.

The long compression of income inequality, which had begun in the 1930s in many Western nations, ended. The gap between rich and poor within nations began to shoot upwards. Economic gains went mostly to the rich, who then used their money to buy legislators and laws, just as was charged in the first story.

The problem of global warming was first recognized, just as Asia was beginning to industrialize, leading to apocalyptic forecasts of submerged cities.

The fragility of the world’s banking systems was exposed in the crash of 2008, shaking global confidence in capitalism’s ability to work without strong government oversight.

And as market values expanded beyond the marketplace, and started taking over medicine, education, and other domains of life, many people felt lamented the crass and degrading materialism of modernity.

So this is our challenge for the 21st century: We celebrate the fact that the wide embrace of free markets has lifted more than a billion people out of poverty. Yet we know we can do better. If we can strip away the anger, the worship, and the ideology, we can examine capitalism and its ethical challenges more openly.

We can see that the supply chains that keep our shelves stocked have their origins in the deadly sweatshops of Bangladesh. We can measure the polluted air and empty oceans we are bequeathing to our children. And we can have a more nuanced discussion of equal opportunity, particularly in America where schools are funded by local taxes and money buys your children a better starting line.

So let us be grateful to the butcher, the brewer, and the baker for the bounty they bestow upon us, even when they are corporations. Let us look back in awe at the political and economic changes that brought us from the first story to the second. And then let us work together to write the third story, a story that must draw on insights from left and right, and from secular thinkers and religious leaders.

Is there a story about capitalism that could be embraced by Pope Francis, His Holiness, and the rest of today’s panelists? Let’s find out.

Excellent short summations on Story 1 and Story 2, and a good start towards Story 3. For the past ten years John Mackey, co-founder and CEO of Whole Foods Market, and I have been working on our version of Story 3 (see http://www.flowidealism.org, http://www.consciouscapitalism.org, and http://www.radicalsocialentreps.org). We certainly believe that free enterprise, and all human activity, should be driven first and foremost by moral concerns and that a blind adherence to profit-maximization often produces monstrous results. We need to create a Story 3 in which all of humanity obtains the extraordinary benefits of entrepreneurial value creation while nonetheless preserving a world that is environmentally sustainable and in which most human activity is devoted to improving the lives of others rather than indulging in materialism, consumerism, and wasteful status competitions.

That said, the hegemony of Story 1 in academia over the past century has led to numerous blind spots that need to be addressed in order develop a version of Story 3 that will produce positive results. For instance, most people, including most scholars, blithely assume that the tragedies in Bangladeshi sweatshops are due to an absence of adequate government regulation. As a consequence, the default assumption among most educated people around the world is that developing nations need more regulation in order to prevent a “race to the bottom.”

As it turns out, prior to the collapse of the factories in Bangladesh a union-supported labor commission concluded that Bangladeshi labor law was “fairly comprehensive and progressive” and a review of some aspects of the Bangladeshi building codes by a Japanese commission concluded that in some respects the Bangladeshi building codes were excessively stringent – by Japanese standards.

It turns out that in Bangladesh, as in many poor nations, there are abundant laws – indeed, by several metrics (World Bank’s Doing Business index, the economic freedom indices) Bangladesh is one of the most highly regulated nations on earth. Indeed, it is a fair generalization that poor countries are poor because of excessive regulation. For instance, the lowest ranked thirty nations on Doing Business and economic freedom indices are mostly African. It requires seventeen documents to import a good legally into the Congo, it costs over $500 to get a document notarized in Senegal, etc.

Conversely, although China is almost universally denounced as one of the most horrific examples of unregulated capitalism, few of its critics seem to be aware that nonetheless average urban wages in China have gone up more than 5x in the past twenty years. With 700 million urban Chinese, this has to be considered one of the greatest moral achievements in history. This is not to belittle the egregious human rights abuses and environmental damages that have taken place in China in the past twenty years. But there are a billion Africans who would love to see their average earnings go up 5x in the next twenty years. There is no way that foreign aid, charity, NGOs, “Fair Trade,” or any other manifestation of “caring” can increase average wages 5x for hundreds of millions of people in a couple of decades. Before moving on to Story 3, we need to start from an accurate understanding of where the world stands regarding the implementation of Story 2. We are not there.

Despite the fact that this information has been well documented and is widely available, I suspect that neither the Dalai Lama nor Professor Haidt was aware of the over-regulation of poor nations or the extraordinary wage growth for the masses in China. The “righteous minds” who dominate the universities are so obsessed with imposing Story 1 on us all that they refuse to acknowledge empirical information that is inconsistent with their narrative. Before we can get to a really rich development of Story 3, we need to reduce the hegemony of Story 1 among university professors (especially those in the humanities and non-economics social sciences).

Once we have cleared up the many misconceptions due to the “righteous minds” of anti-capitalist academia and their social dominance on most campuses, then we can move forward in dramatically positive ways in crafting positive versions of Story 3 that will change the world for the better.

Mr. STrong: This is very well put; this is very much what I will be trying to say about the “third story.” In fact, your work with Mackey will be covered specifically. I certainly know about the rise of wages and conditions in China — that’s a key point for Story 2 — the hockey stick, wherever capitalism is allowed to flourish. But I did not know about the degree of rgulation in Bangladesh. I’ll be focusing a lot on corruption. It will be interesting to see if regulation per se is so closely tied to failure, or whether its regulation combined with massive corruption. Thank you!

Enjoy reading your work and respect your efforts even though I don’t really share your aims.

Some comments here which I have not worked over, so please forgive any conceptual sloppiness. I’m sure you will get the gist of it one way or another.

Also, I recognize that as your view is that morality is an evolutionary artifact found varying among certain population groups, it probably makes only a limited amount of sense to ask you the following questions, as if you are engaged in more than a purely descriptive enterprise.

But I will. I will because you seem to – even though you and your followers repeatedly stipulate that norms are not objectively normative; i.e, universally binding in some transcendental sense – speak otherwise, and as if you imagine that you are giving voice to more than “the state of your own digestion”.

You do I think it is fair to say, (and I think you would readily agree) often talk and in an imperative mood, as though certain moral principles at least, are in fact something more than biological dispositions or capacities, merely like, say, the ability of an adult to (or not) digest cow’s milk. I mean here of course, that you often talk as if solidarity between populations having largely antithetical evolved values, is incumbent on them for on what are other than purely instrumental or pragmatic grounds. That is, you talk as if you may be personally uncertain if reason really is no more than the servant of passions, or if moral principles are really no more than a manifest difference in an “A” or a T” or a “G” in a transcription sequence.

Most obviously in this vein, you seem to talk as though compassion for even the insistently improvident, reckless, or behaviorally incontinent, is a “real” virtue, rather than a mere artifact of the chemistry of some number of human brains and their reward systems.

This gets me to the reciprocity problem and your posing of the “interests” question which you figure to be more solvable than the moral subspecies problem.

You are quoted:

“For the first time in our history,” says Haidt, a professor at NYU’s Stern School of Business, “the parties are not agglomerations of financial or material interest groups, they’re agglomerations of personality styles and lifestyles. And this is really dangerous. Because if it’s just that you have different interests, that doesn’t mean I’m going to hate you. It just means that we’ve got to negotiate, I want to win, but we can negotiate. If it’s now that ‘You people on the other side, you’re really different from me, you live in a different way, you pray in a different way, you eat different foods than I do,’ it’s much easier to hate those people. And that’s where we are.”

In the case above, “interests” were originally narrowly posited as the financial interests of individuals in a mixed and not as yet assortated population. (Yeah I guess “assortated” isn’t a real word)

However, that association was itself nothing more than expedient.

The reciprocity problem is embedded within this context: If I can work free of exigent circumstances and see daylight ahead, if it is not in my long term interest to be legally shackled in order to serve someone in whose interest – in whose nature apparently – it is to have me so harnessed to my own cost and lost freedom, then, we have an asymmetrical and absurdly dystopian result. A situation wherein what one party, the first party, wants or needs from the second party in order to realize its good, the second party has no need in nor interest in having from the first in order to realize its own good.

What use is “understanding” the other here? We understand only too well. To take an extreme example, how does having a drink with Karl Marx and listening to his grievances make me wish to place my fate and life chances in the hands of he and those like him?

This un-rectifiable reciprocity imbalance, the result of a non-distributive concept of social good, based on an actual evolutionarily bifurcated individual good, seems to underlie the problem which the liberal”compassion-side” has with the supposedly Karma endorsing ( I think you might as well call it cause and effect recognizing) conservative or libertarian side.

The libertarian approach to justice issues, is ensure equality before the law and then to tell the weak and neurotic and fearful to get a set of barbells and take up jogging; the solution of the compassion dispensing side is to tell the libertarian side what to eat and how much of their life energies they are to expend on insulating the compassion dispensing side from the effects of their own – or their social clients and poll booth enablers’ -behaviors.

So,

1. How are you going to work that “compromise” out? Someone might as well suggest I negotiate with him to not to drink milk or eat wheat myself, because he cannot digest it.

2, From the libertarian or conservative side: Why bother? Why save such a poorly premised framework of association, or society?

Wow I can really see the difference between US and non US liberals from this.

Could Capitalism and Marxism be the same wolf in different sheep skin?

Consider the first story, but only changing the antagonist:

Once upon a time, work was real and authentic. Farmers raised crops and craftsmen made goods. People traded those goods locally, and that trade strengthened local communities. But then, Marxism was invented, and darkness spread across the land. The Government Officials developed ingenious techniques for squeezing wealth out of workers, and then sucking up all of societies’ resources for themselves. The Government Official class uses its wealth to buy political influence, and now the 1% is above the law. The rest of us are its pawns, forever. The end.

I think that works pretty well — it fits the general moral narrative described by Drew Westen, in which things were good before, and then the enemy came, and we must fight the enemy. It also captures the tendency for power to corrupt. I also think its truer than the anti-capitalist narrative. It’s really hard to make the case that communism improved any societies overall, what with the gulags and the poverty.

You need to incorporate the 2 stories of government. There is the left-wing belief in unicorn government employing magic fairy dust to insure that politicians and bureaucrats are motivated only by concern for the people. And there is the version told by public choice economics.

I appreciated your presentation on capitalism at the University of Louisville on 9/30/15, and am following up our discussion by looking for the two videos that you created. Could you navigate me to the area in which they are located? Thanks!

Very well put indeed. I wonder if complementary views and narratives from other cultures will be incorporated to establish a generalizable ‘story’ at the end. I am curious to hear your comments and see the promising work, hopefully very soon.